stable results but lacking surprise, maintain neutral

See the last page for disclaimer of 7

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Company Report: Sun Art Retail (06808 HK) Andrew Song 宋涛

公司报告：高鑫零售 (06808 HK) +852 2509 5313

[email protected]

12 May 2017

Stable Results but Lacking Surprise, Maintain “Neutral” 表现稳定但缺乏惊喜，维持“中性”

1Q17 revenue reached RMB 31,617 million, up 2.0% YoY, net profit

increased 1.5% YoY to RMB 1,041 million. SSS declined approximately

1.5% YoY during the period, of which, foot traffic dropped by around 4% YoY

and per ticket price rose by 3%-4% YoY.

Key takeaways: 1) Gross margin was flat YoY, but if excluding VAT impact

was up 0.3 ppts; 2) SSSG declined in 1Q17 due to the timing of Chinese

New Year in 2017 and one day less in February 2017 compared with 2016;

3) store closures brought an impairment loss of around RMB 60 million and

the Company targets to close 1-2 more sometime in the year; 4)

e-commerce loss narrowed by RMB 30 million in 1Q17.

Revenue growth remained moderate in 1Q17 and SSSG remained negative.

The earnings growth did not meet market expectations and the Company’s

stock price has recently plunged. The reduction in e-commerce loss helps

but the effect is limited. We maintain the investment rating as “Neutral”

and TP of HK$ 6.91, representing 20.5x 2017 PER, 18.9x 2018 PER and

17.5x 2019 PER.

2017 年第一季度收入同比上升 2.0%至人民币 31,617 百万元，股东净利同比上升 1.5%至

人民币 1,041 百万元。公司同店销售略微同比下降约 1.5%，其中客流量同比下降约 4%，

客单价同比提升 3%-4%。

关键摘要：1）毛利率同比持平，但除去增值税影响同比改善 0.3 个百分点；2）2017 年

第一季度同店增长倒退主要由于农历新年日期及 2 月相比 2016 年减少一天；3）关店录

得约 6000 万人民币的减值损失，且公司计划在今年剩下时间里再关闭 1-2 家；4）2017

年第一季度电商亏损收窄 3000 万人民币。

2017 年第一季度收入增长温和，同店增长仍未转正。盈利增速不及市场预期，公司股价

在近日下降较多。电商减亏有所帮助但是效果有限。我们维持高鑫零售的投资评级“中

性”及目标价 6.91 港元，相当于公司 20.5 倍 2017 年市盈率、18.9 倍 2018 年市盈率和

17.5 倍 2019 年市盈率。

Rating: Neutral Maintained

评级：中性 (维持)

6-18m TP 目标价: HK$6.91 Revised from 原目标价: HK$6.91

Share price 股价： HK$6.900

Stock performance 股价表现

(10.0)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

May-16 Aug-16 Nov-16 Feb-17 May-17

% of return

HSI Index SUN ART RETAIL

Change in Share Price

股价变动

1 M

1 个月

3 M

3 个月

1 Y

1 年

Abs. %

绝对变动 % (11.7) (13.5) 33.7

Rel. % to HS index

相对恒指变动 % (15.0) (20.1) 7.6

Avg. share price(HK$)

平均股价（港元） 7.7 7.5 6.3

Source: Bloomberg, Guotai Junan International.

Year End 年结

Turnover 收入

Net Profit 股东净利

EPS 每股净利

EPS 每股净利变动

PER 市盈率

BPS 每股净资产

PBR 市净率

DPS 每股股息

Yield 股息率

ROE 净资产收益率

12/31 (RMB m) (RMB m) (RMB) (△%) (x) (RMB) (x) (RMB) (%) (%)

2015A 96,414 2,443 0.256 (15.7) 22.6 2.175 2.7 0.160 2.8 12.1

2016A 100,441 2,571 0.270 5.2 21.8 2.284 2.6 0.200 3.4 12.1

2017F 106,210 2,732 0.286 6.3 20.5 2.370 2.5 0.144 2.5 12.3

2018F 113,374 2,961 0.310 8.4 18.9 2.536 2.3 0.156 2.7 12.7

2019F 121,213 3,194 0.335 7.9 17.5 2.715 2.2 0.168 2.9 12.7

Shares in issue (m) 总股数 (m) 9,539.7 Major shareholder 大股东 A-RT Retail Holdings Ltd. 51.0%

Market cap. (HK$ m) 市值 (HK$ m) 65,823.9 Free float (%) 自由流通比率 (%) 21.7

3 month average vol. 3 个月平均成交股数 (‘000) 14,057.2 FY17 Net gearing (%) FY17 年净负债/股东资金 (%) Net cash

52 Weeks high/low (HK$) 52 周高/低 8.880 / 4.780 FY17 Est. NAV (HK$) FY17 年每股估值 (港元) 7.2

Source: the Company, Guotai Junan International.

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Sun Art Retail (06808 HK)


Shareholders’ profit increased by 1.5% YoY to RMB 1,041 million in 1Q17. Revenue reached RMB 31,617 million during

the period, up 2.0% YoY, of which rental revenue rose by 5.3% YoY, and if excluding the effect of VAT, rental revenue

increased 9.6% YoY. Revenue growth and net profit growth missed our full-year growth forecasts of 5.7% and 5.3% by 3.7

ppts and 3.8 ppts, respectively.

Gross margin was relatively flat at 21.6% in 1Q17 and gross profit rose by 2% YoY to RMB 6,836 million. According to

the management, gross margin would increase by 30 bpts during the period if excluding the effect of VAT reform. The VAT

reform started in May 2016 and mainly impacts rental revenue of the Company. So we think that the VAT impact will still exist in

2Q17, but less significantly. Nevertheless, EBIT margin remains flat, which indicates that increasing staff costs have been

covered by gross margin improvement, as the management guided before.

Table-1: Sun Art’s 1Q17 Results Review

RMB million 1Q16 1Q17 YoY Comment on 1Q17 Results

Revenue 31,012 31,617 2.0% Rental income up 5.3% YoY

Cost of sales (24,310) (24,781) 1.9%

Gross profit 6,702 6,836 2.0%

Operating profit 1,541 1,593 3.4%

Profit for the period 1,068 1,113 4.2%

Shareholders' profit 1,026 1,041 1.5%

Gross margin 21.6% 21.6% 0.0 ppt Up 0.3 ppts excluding the VAT effect

EBIT margin 5.0% 5.0% 0.0 ppt Impairment of store closure dragged 0.2 ppt

Net margin 3.3% 3.3% 0.0 ppt


Table-2: Quarterly Results Breakdown

RMB million 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17

Revenue 29,294 21,414 23,357 22,349 31,012 21,931 24,376 23,122 31,617

YoY growth 5.6% 5.6% 5.2% 3.4% 5.9% 2.4% 4.4% 3.5% 2.0%

Gross profit 6,318 5,107 5,581 5,457 6,702 5,357 5,999 5,923 6,836

YoY growth 9.0% 8.0% 8.5% 2.4% 6.1% 4.9% 7.5% 8.5% 21.6%

Operating profit 1,578 458 966 302 1,541 517 1,075 548 1,593

YoY growth -7.6% -23.3% -10.9% -41.9% -2.1% 14.1% 12.0% 72.9% 3.4%

Shareholders’ profit 1,065 411 542 425 1,026 406 599 540 1,041

YoY growth -9.7% -22.6% -14.1% -23.8% -3.5% 0.0% 11.1% 24.7% 1.5%

Gross margin 21.6% 23.8% 23.9% 24.4% 21.6% 24.4% 24.6% 25.6% 21.6%

YoY growth 0.7 ppt 0.5 ppt 0.7 ppt -0.2 ppt 0.0 ppt 0.6 ppt 0.7 ppt 1.2 ppts 0.0 ppt

Operating margin 5.4% 2.1% 4.1% 1.4% -2.1% 14.1% 12.0% 72.9% 5.0%

YoY growth -0.8 ppt -0.8 ppt -0.7 ppt -1.1 ppt -0.4 ppt 0.2 ppt 0.3 ppt 1.0 ppt 0.0 ppt


SSSG was negative in 1Q17 at -1.5%. In detail, SSSG was down by around 2.0% in January-February, but up by over 2.0%

in March and up 1.8% in April. In 1Q17, price per ticket increased YoY by around 3%-4%, but foot traffic declined by around

4% YoY. The management explained that the negative SSSG was mainly due to the timing of Chinese New Year in 2017, and

one day less in February compared with 2016. Also, CPI in China was 1.4% and food CPI was -2.1% in 1Q17, lower than that

in 2016.

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Figure-1: Sun Art’s SSSG

4.0%

2.0%

0.0%

-1.6%

-3.4% -3.6%

-0.3% -0.3%

-1.5%

-4%

-2%

0%

2%

4%

6%

1H13 2013 1H14 2014 1H15 2015 1H16 2016 1Q17 Source: the Company.

Store opening target remains at 30-35 in 2017. Sun Art opened only 1 new store in 1Q17 (8 in 1Q16) and closed 1 store in

Qingdao as previously guided. Total number of stores by the end of 1Q17 stayed at 446 (78 Auchan stores and 368 RT-Mart

stores). The management mentioned that their store opening plan did not change and most new stores will be launched in

2H17. In addition, the management guided that 1-2 more stores would be closed during the year. The store closure in 1Q17

brought an impairment loss of approximately RMB 60 million, including equipment impairment and staff compensation,

however, the impairment amount varies case by case. Also, the impairment dragged EBIT in 1Q17 by around 0.2 ppt,

according to the management.

Table-3: Number of Sun Art Stores

Location 2015

1Q16

2016

1Q17

Auchan RT-Mart Total




Eastern China 46 122 168

47 124 171

50 131 181

50 131 181

Northern China 7 38 45

7 38 45

6 42 48

6 42 48

North-Eastern China 2 38 40

2 38 40

2 44 46

2 44 46

Southern China 5 69 74

5 72 77

5 75 80

5 75 80

Central China 9 55 64

9 57 66

10 61 71

10 61 71

Western China 5 13 18

5 13 18

5 15 20

5 15 20

Total 74 335 409

75 342 417

78 368 446

78 368 446

Source: the Company.

GMV of Feiniu.com increased by 93% YoY. Growth is in line with the management’s guidance of a 100% YoY increase in

targets, but slowed down compared with 2016. The management mentioned that the loss from e-commerce was cut by

approximately RMB 30 million, improving by EBIT margin by 0.1 ppt. The Company is changing its focus from B2C services to

O2O leveraging within its nationwide offline stores. The market expects a larger improvement in earnings as the Company

plans to reduce its input into e-commerce, but the results do not seem significant.

VALUATION

Maintain investment rating as “Neutral” and target price of HK$ 6.91. Net profit growth in 1Q17 missed market consensus

by around 10 ppts, and the recent dive in stock price reflects the market’s disappointment. Sales growth in 1Q17 remained

sluggish and foot traffic continued to decline despite a low base. We have noted improving SSSG in March and April, but the

performance still lacks surprise. Reduction in e-commerce loss did help the EBIT margin but the real effect is weaker than

market expectations. We maintain our “Neutral” rating and TP of HK$ 6.91, representing 20.5x, 18.9x and 17.5x 2017-2019

PER, respectively.

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Figure-2: Historical Forward PER of Sun Art Figure-3: Historical Forward PBR of Sun Art

12

17

22

27

32

37

42+1 std Avg -1 std Historical PEx

0

1

2

3

4

5

6+1 std Avg -1 std Historical PBx

Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International.

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Table-4: Peers Comparison

Company Stock Code Currency Last price PE (fiscal year)

PB (fiscal

year) Gross

Margin(%) Operating Margin(%)

Net Margin(%)

ROE(%)

D/Y(%)

Market Cap

16A 17F 18F 17F 17F 17F 17F 17F 17F HKD mil

HK - Listed Supermarkets Sun Art Retail Group Ltd 6808 HK HKD 6.900

21.9 21.1 19.4

2.6

24.0

3.7 2.6

12.5

3.0

65,824

Lianhua Supermarket Hldgs -H 980 HK HKD 2.950

n.a. n.a. n.a.

1.2

14.9

0.6 (0.5)

(5.3)

0.0

3,303

Beijing Jingkelong Co Ltd-H 814 HK HKD 2.330

33.2 22.8 17.9

0.5

20.4

1.8 0.3

2.2

2.7

960

Simple Average 27.6 22.0 18.7 1.4 19.8 2.0 0.8 3.1 1.9

Weighted Average 22.1 21.1 19.4 2.5 23.5 3.5 2.5 11.5 2.9

HK - Listed Department Stores

Lifestyle Intl Hldgs Ltd 1212 HK HKD 10.800

10.9 10.2 10.4

6.1

49.5

42.7 35.9

72.5

5.0

17,308

Golden Eagle Retail Group 3308 HK HKD 11.660

40.9 19.5 17.7

3.0

65.8

31.1 18.6

16.4

2.6

19,532

Intime Retail Group Co Ltd 1833 HK HKD 9.980

15.8 22.2 21.2

1.5

52.0

20.4 17.1

7.6

1.9

27,200

Maoye International Hldgs 848 HK HKD 0.800

76.0 n.a. n.a.

n.a.

n.a.

n.a. n.a.

n.a.

n.a.

4,112

Springland International Hol 1700 HK HKD 1.640

10.0 10.4 10.1

0.7

40.5

12.7 7.6

6.5

4.2

3,797

Parkson Retail Group Ltd 3368 HK HKD 1.060

16.2 n.a. n.a.

0.5

68.2

(1.7) (4.3)

(4.1)

n.a.

2,793

New World Dept Store China 825 HK HKD 1.210

40.3 n.a. n.a.

n.a.

n.a.

n.a. n.a.

n.a.

n.a.

2,040

Shirble Department Store 312 HK HKD 0.500

21.4 n.a. n.a.

n.a.

n.a.

n.a. n.a.

n.a.

n.a.

1,248

Simple Average 28.9 15.6 14.8 2.4 55.2 21.0 15.0 19.7 3.4


PRC - Listed Supermarkets

Yonghui Superstores Co Ltd-A 601933 CH CNY 6.030

43.1 37.2 30.3

2.9

20.4

3.2 2.7

8.0

1.6

65,192

Better Life Commercial Cha-A 002251 CH CNY 11.590

68.7 53.9 46.0

1.8

22.0

1.6 1.0

3.5

0.9

11,311

Renrenle Commercial Group-A 002336 CH CNY 9.790

64.7 n.a. n.a.

n.a.

n.a.

n.a. n.a.

4.4

n.a.

4,424

Beijing Hualian Hypermarke-A 600361 CH CNY 5.660

n.a. 62.9 47.2

1.4

22.0

0.3 0.5

2.2

n.a.

4,257

Simple Average 58.8 51.3 41.2 2.0 21.5 1.7 1.4 4.5 1.2


Japan - Listed Supermarkets

Seven & I Holdings Co Ltd 3382 JP JPY 4,829.000

26.5 44.1 22.0

1.8

22.5

7.8 2.1

4.1

2.0

293,029

Aeon Co Ltd 8267 JP JPY 1,694.000

235.6 126.0 71.8

1.3

27.3

2.5 0.2

1.0

1.8

101,110

Lawson Inc 2651 JP JPY 7,520.000

24.0 20.7 21.3

2.7

31.4

29.0 14.3

13.5

3.2

51,632

Familymart Co Ltd 8028 JP JPY 6,490.000

29.2 37.8 28.3

1.6

26.1

10.9 3.7

4.7

1.6

56,295

Arcs Co Ltd 9948 JP JPY 2,472.000

21.0 13.1 14.0

1.1

24.6

2.9 2.0

8.6

1.8

9,586

Heiwado Co Ltd 8276 JP JPY 2,513.000

14.1 14.3 13.5

0.9

29.6

3.7 2.2

6.8

1.2

10,072

Ministop Co Ltd 9946 JP JPY 2,259.000

67.6 304.0 436.1

1.1

37.6

0.6 0.1

0.4

2.1

4,542

Okuwa Co Ltd 8217 JP JPY 1,243.000

68.9 37.6 34.9

0.7

25.6

1.0 0.6

1.9

2.3

3,849

Simple Average 60.8 74.7 80.2 1.4 28.1 7.3 3.2 5.1 2.0


Europe, North America and Australia - Listed Supermarkets Wal-Mart Stores Inc WMT US USD 76.130

16.6 17.3 17.6

3.0

25.6

4.7 2.8

17.2

3.0

1,798,219

Target Corp TGT US USD 56.060

10.5 11.8 14.0

2.8

29.7

7.2 3.9

22.9

3.7

240,935

Kroger Co KR US USD 30.430

14.6 14.6 13.9

4.2

22.4

3.0 1.7

29.0

1.4

219,575

Wesfarmers Ltd WES AU AUD 44.360

122.5 17.2 17.0

2.1

31.0

6.4 4.2

12.3

4.9

289,097

Tesco Plc TSCO LN GBp 180.350

106.1 n.a. 17.5

2.3

5.2

1.8 (0.1)

(0.5)

0.0

148,025

Woolworths Ltd WOW AU AUD 27.050

n.a. 23.3 20.9

3.7

27.0

4.2 2.6

16.4

2.9

201,253

Carrefour Sa CA FP EUR 22.005

21.8 13.7 12.3

1.4

21.5

3.2 1.5

10.7

3.5

140,899

Metro Ag MEO GR EUR 29.602

16.2 14.3 13.0

1.7

19.5

2.6 1.2

12.6

3.6

81,855

Metro Inc MRU CN CAD 46.100

19.1 17.7 16.2

4.0

19.8

6.2 4.5

22.2

1.4

59,785

Sainsbury (J) Plc SBRY LN GBp 265.100

11.1 15.1 13.6

0.9

6.2

2.4 1.4

6.2

3.8

58,256

Wm Morrison Supermarkets MRW LN GBp 242.100

25.5 18.5 19.6

1.6

3.7

2.9 1.9

7.8

2.3

56,768

Casino Guichard Perrachon CO FP EUR 53.170

2.2 17.2 14.4

0.7

25.4

3.2 0.9

4.8

5.9

49,970

J.C. Penney Co Inc JCP US USD 5.290

n.a. n.a. 11.4

1.2

35.7

3.1 0.0

0.1

0.0

12,720

Simple Average 33.3 16.4 15.5 2.3 21.0 3.9 2.1 12.4 2.8


Source: Bloomberg, Guotai Junan International.

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Financial Statements and Ratios

Income Statement Balance Sheet

Yr end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Yr end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F

Turnover 96,414 100,441 106,210 113,374 121,213 Fixed assets 26,418 27,308 27,359 27,356 27,295

Cost of sales (73,951) (76,460) (80,426) (85,455) (91,000) Land use right 5,278 5,412 5,552 5,698 5,848

Gross profit 22,463 23,981 25,783 27,919 30,213 Others 1,169 525 1,275 1,343 1,421

Non-current assets 32,865 33,244 34,186 34,397 34,564

Other revenue 476 618 679 722 769

Administrative expenses (2,633) (2,876) (3,041) (3,246) (3,471) Inventories 12,646 15,409 13,837 14,413 17,253

Operating costs (17,002) (18,042) (19,602) (21,316) (23,142) Trade & other receivables 3,380 3,552 3,276 3,807 3,526

Profit from operations 3,304 3,681 3,819 4,079 4,370 Bank deposits 36 36 40 44 48

Cash balance 6,582 8,100 11,514 14,341 16,374

Finance income, net 251 232 338 426 489 Available for sale items 0 0 0 0 0

Profit before taxation 3,552 3,909 4,154 4,502 4,856 Current assets 22,644 27,097 28,667 32,605 37,201

Income tax (1,088) (1,280) (1,360) (1,474) (1,590) Trade & other payables 32,626 36,807 38,082 40,487 43,407

Minority interest (21) (58) (62) (67) (72) Bank loans and overdrafts 638 23 369 388 407

Shareholder's profit 2,443 2,571 2,732 2,961 3,194 Others 491 638 646 717 764

EPS (RMB) 0.256 0.270 0.286 0.310 0.335 Current liabilities 33,755 37,468 39,097 41,592 44,579

Cash Flow Statement Non-current liabilities 127 64 61 61 61

Yr end 31 Dec (RMB m) 2015A 2016A 2017F 2018F 2019F

Total equity 33,882 37,532 39,158 41,653 44,640

Profit before tax 3,552 3,909 4,154 4,502 4,856 Shareholders' equities 20,746 21,785 22,609 24,197 25,901

Depreciation and amortization 2,954 2,971 3,062 3,158 3,260 Minority interest 881 1,024 1,086 1,152 1,224

Interest income (271) (255) (362) (451) (515) BPS (RMB) 2.175 2.284 2.370 2.536 2.715

Finance cost 20 23 24 25 27

Working capital change 1,169 1,376 2,965 1,263 326 Key Financial Ratios

Others (1,124) (1,072) (977) (1,026) (1,165) Yr end 31 Dec 2015A 2016A 2017F 2018F 2019F

Operating cash flow 6,300 6,952 8,865 7,471 6,789

Growth (%):

Purchase of PP&E (4,837) (3,564) (3,585) (3,628) (3,671) Turnover growth 5.0 4.2 5.7 6.7 6.9

Others 254 201 290 365 412 Net profit growth (15.7) 5.2 6.3 8.4 7.9

Investing cash flow (4,583) (3,363) (3,295) (3,263) (3,259) Gross margin 23.3 23.9 24.3 24.6 24.9

Operating margin 3.4 3.7 3.6 3.6 3.6

Net bank loans 217 (372) 18 18 19 Net margin 2.5 2.6 2.6 2.7 2.7

Interest paid (15) (23) (24) (25) (27)

Dividend paid (1,230) (1,695) (1,908) (1,374) (1,489) ROE (%) 12.1 12.1 12.3 12.7 12.7

Others 109 0 (241) 0 (0) ROA (%) 4.5 4.4 4.4 4.6 4.6

Financing cash flow (919) (2,090) (2,156) (1,381) (1,496)

Inventory days 58.8 67.0 66.4 60.3 63.5

Net increase in cash 798 1,499 3,414 2,827 2,033 Account receivable days 0.7 1.2 0.7 0.6 0.6

Cash balance year beginning 5,770 6,582 8,100 11,514 14,341 Account payable days 85.0 93.2 96.5 95.9 96.5

Foreign exchange effect 14 19 0 0 0 Cash cycle (25.6) (25.1) (29.5) (35.0) (32.3)

Cash balance year end 6,582 8,100 11,514 14,341 16,374

Bank overdraft 0 0 0 0 0 Current ratio (x) 0.7 0.7 0.7 0.8 0.8

Balance sheet cash 6,582 8,100 11,514 14,341 16,374 Pay-out ratio (%) 62.4 74.2 50.3 50.3 50.3


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Company Rating Definition

The Benchmark: Hong Kong Hang Seng Index

Time Horizon: 6 to 18 months

Rating Definition

Buy Relative Performance >15%; or the fundamental outlook of the company or sector is favorable.

Accumulate Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable.

Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral.

Reduce Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

Sector Rating Definition

The Benchmark: Hong Kong Hang Seng Index

Time Horizon: 6 to 18 months

Rating Definition

Outperform Relative Performance >5%; or the fundamental outlook of the sector is favorable.

Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral.

Underperform Relative Performance <-5%; or the fundamental outlook of the sector is unfavorable.

DISCLOSURE OF INTERESTS

(1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for SMI Holdings Group Limited (00198 HK), GFI MSCI A I-R (CNY) (83156 HK), Guotai Junan International Holdings Limited

(01788 HK), GFI MSCI A I (03156 HK), Binhai Investment Company Limited (02886 HK), CAM SCSMALLCAP (03157 HK) and Link Holdings Limited (08237 HK), Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report.

(4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months.

(5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report.

(6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

DISCLAIMER

This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities

(Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction. © 2017 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong. Tel.: (852) 2509-9118 Fax: (852) 2509-7793 Website: www.gtja.com.hk

stable results but lacking surprise, maintain neutral

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